Should this give us Ex-pats confidence in future US Dollar investments & assets vs. Mexican Peso Assets?
In further deficit fighting actions: the US Treasury just sold $66 billion in new treasury notes.New Treasury Supply Helps Market Get a Grip

What other additional tasty tidbits have been thrown into the flotsam and jetsam of things un-reported by the US mainstream big media? . . .

Reports out of Great Britain’s media describe how the Chinese Govt. had sold off roughly $65 billion of US treasury securities that were maturing between Dec. 2010 and the present ($34 billion in Dec as the biggest chunk and another reported $24 billion in Jan 2011). . . .

Why should this matter? Last week, China’s Central Bank head, Zhou, had said that China had“too much in reserves”
aka an understatement of their intention to dump more US dollars? . . .

In a related little-reported quote this past weekend, a key member of the monetary policy at the Beijing’s central bank, Mr. Bin, seems to clarify their earlier hints about “too much in reserves” by saying: “$1 trillion dollars in reserve would be sufficient” …

. . . Are these possible reasons why US Ex-pats who expected to live on US dollar-based “fixed incomes” seem to actually be looking at living on declining incomes? And Mexican investments seem to consistently be outperforming their US counterparts?

In the last five years or so the exchange rate went from around 9, down to 13 or so and is sitting at 11 plus now. Inflation is high in the US right now, fuel and food seem to be going up the fastest, housing is cheap if you have the money to put 20% down and do an old type loan. I think that inflation is high in Mexico as well. The Economist magazine says the rate in Mexico is 3% now, 5% last year and they are projecting just under 4% for next year, their US numbers are: 2.7, 2.3, 2.5. I saw that the US savings bonds that are pegged to inflation are paying 4.5% with no base-that tells me that the US government is expecting much higher inflation in the US than what the people at the Economist are expecting.
Government bonds: A ten year note pays 7.15 in Mexico, a US note pays 3.36, long term the market is betting both countries are going to be stable. If you want to get in on a good thing, find a way to buy Brazil’s three month paper, it’s paying almost 12% and the money people are doing their best to try and hold their currency down. Things like taxing inflows and such, fining folks who want to invest-we call that an overheated market…
I think what we will see is an increase in payroll taxes(the upper limits are toast), big cuts in exemptions(GE paying no income tax is going to be history), the military is going to see cuts in its budget(can we afford to be the world’s policeman?) and inflation.
I see Mexico and the US becoming more integrated over time, as the Mexican citizens who came to the US exercise their franchise, we will see our nations adopt a more common policy between our nations. I see a better future for both nations.

So much speculation about inflation leaves out a vital part of the equation: “missing money.”

28% of all homes in the USA are now underwater, many of them severely underwater, meaning the nominal owners owe much more than the house is worth.

Over $15.5 trillion (yes, with a “t”) in wealth has evaporated from the US economy due to the combined financial catastrophe engineered on Wall Street and the collapse in home prices around the nation.

The real risk, which is growing stronger every day, is deflation. Combine sharply reduced wealth with “austerity” spending and you’ve got the recipe for the perfect storm. Although ‘officially’ the nation is now in “economic recovery,” the ‘official’ unemployment rate remains near 9% and the U6 measure widely accepted as more accurate of real peoples’ lives as well as more descriptive of the economy is over 16%.

Reduced spending in state and local governments due to sharp tax revenue decreases (property and sales taxes) have led to additional layoffs, project cancellation, curtailed construction just as the economy was supposedly beginning to recover. If the federal budget is seriously slashed before recovery takes hold, the US will fall into Depression and her evil twin: Deflation.

Deflation is the most feared phenomenon because it is essentially uncontrollable through monetary policy or deficit spending or any other means. Deflation condemns a nation to painful years of decline and a long, slow slog out of the hole.

People are rumbling about inflation as though it were a fact, yet the world has a glut in oil as everyone from US big oil to the Saudis to the IEA admit. When oil took a sudden price dive in one recent day, it was revealed that the higher price had been supported solely on speculation alone.There was simply no physical way that either demand had fallen so sharply or supply increased so suddenly that the price fall could be explained in capacity terms. The same in food commodities. Since the deregulation of commodity markets, this type of manipulation has become more frequent.

Take food and energy out of the picture and is there inflation in the USA? No, there is not. But we are close to the point at which deflation takes hold.

In the last day, the latest metrics show that housing prices continue to fall approximately 1% per month on a national basis. That’s 1% per month of the value of the home disappearing from families’ balance sheets; 12% per year. The “bottom out” of home prices predicted for 2009, then 2010, then 2011, has now been extended to 2012 with forecasters refusing to take any stand on whether that is certain.

Smaller balance sheets mean less spending means less “recovery”….

We’ve been here before. Real economists (as opposed to ideologues) know what works and what doesn’t. If we care to ignore our own lessons from the Great Depression, we can look at the financial collapse in Japan not long ago and ponder their “lost decade” caused by “austerity spending cuts” and failure to promptly address the root causes of the problem.

Problem today is, we’re burdened with a government with parts firmly in the grip of fearful ideologues and so beholden to finance and mega-corporations that none of the branches will do what is necessary to stay afloat. The Great Depression wasn’t just the stock market crash. It was a series of policy successes and blunders. We don’t have time for ideology and grandstanding. We have to examine the facts and get to work. Or the current Great Recession will continue through the decade long course of the Great Depression and Japan’s Lost Decade.

Hi Rusty,
You make some interesting points, but the points seem almost universally based on distortions of facts.

Does anyone out there reading this believe that there is no inflation? Does anyone else notice that we are paying more for smaller packages and smaller portions of the same things? Rusty’s idea that we are on the brink of deflation, is based upon:
“Take food and energy out of the picture and is there inflation in the USA? No, there is not. But we are close to the point at which deflation takes hold.”

I know that the pundits repeat the specious “Take food and energy out of the picture…” over and over , as if it were truth, but how many of us ignore, or don’t care-about, or are not affected by rising rising food and energy prices. Is there “no inflation” when you pay more at the pump every week? Is there somehow “no real inflation” when food costs rise and portions diminish? These distortions are the axles and foundations of the “deflation” crowd’s proposals.

Another distortion, that is key to Rusty’s predictions, is that there is a “glut of oil”, paired with the idea that our current $100+ per barrel price of oil is artificial, because of his claims of a “glut of oil”. Again, this claim just does not stand up to factual scrutiny. As China’s economy continues it’s 10% annual growth, as India’s economy continues it’s 9% growth, as Germany’s economy continues to recover and increase, and as the US economy and US manufacturing has 19 months of successive month-on-month growth, the world’s rate of oil consumption has grown and will likely continue to grow. World oil consumption of roughly 88 million barrels per day has basically equaled the world’s 87 billion per day normal capacity to produce oil. When overall consumption exceeds normal production rates, then oil prices rise.

Is it reasonable to say that there is a “glut of oil”? This implies that there is an oversupply of oil production that is choking demand, while reality says that it has taken extraordinary actions by the Saudis’ temporary 4 million barrel per day increases in oil production, to offset the over-consumption by the growing German, Indian, Chinese and US economies? If there is a glut of oil, why have the Saudis jumped in with big temporary oil production increases to offset the losses of Libyan oil production? Wouldn’t increasing production actually lower prices, unless the reality is that the Saudi’s need the US, German, Chinese, Japanese, Indian, and Brasilian economies to continue to cook along by supplying enough oil to keep it all running.

Finally, the facts about 2011 home prices still falling, due to unknown reasons, are distortions that artificially promote a deflation agenda. Reality says that unemployment rate recoveries always lag all other parts of economic recoveries (since the bosses do not start re-hiring until they have substantial backlogs of orders, are already working their crews to their overtime limits, and start rehiring when there are solid prospects of lots of new future orders). The continued falling home prices in some markets are predicatble, due to new foreclosures and a backlog of old foreclosed properties are directly explained-by and are tied-to the problems of significant unemployment rates, and continuing high unemployment due to current new and upcoming local, state, and federal govt. layoffs.

There is no mystery here about why and when home prices are falling, and why the real estate market will hit bottom and then start to recover in 2012. The current and future local, state, and federal govt. layoffs were delayed by Obama’s $2 trillion of artificial stimulus money give-aways to local, state, and federal agencies. Printing and pumping an extra $2 trillion to artificially protect government jobs only delayed the necessary tax increases and employee layoffs from 2009/2010 into 2011 instead, delaying the effects of state and local govt. deficits on a number of weak housing markets in the 30 states with big deficits. There is no mystery here: Obama’s choice to print and pass-out an extra $2 trillion dollars caused a very predictable shifting of govt. lay-offs and cutbacks from 2009/2010 into 2011 – which triggers a fresh round of new home foreclosures in 2011, which depresses housing prices in 2011. Since the state & local govt layoffs and cutbacks legally should not continue into 2012, (the States cannot simply print more money like the Feds, so they MUST balance their budgets with cutbacks), there seems to be no new large sources of US layoffs, which means the 1 year backlog of foreclosed properties will be mostly sold-off by roughly mid 2012, and home prices will begin to recover. Again, the facts point to slow & predictable recovery.

Allusions to Japan’s Lost Decade, are also hollow, because the circumstances are very different. Japanese businesses had $11 trillion in hidden debt, which sapped their banking system and choked their ability to invest in manufacturing and improvements, plus the Japanese Govt. undertook 10 years of less-than-necessary infrastructure building projects, again printing trillions of govt $$ that was unsupported by any actual economic basis. In contrast, US big businesses are not debt-laden like their Japanese counterparts, and in fact the opposite is true, with US big business sitting on the largest cash hoards and biggest reserves ever in the history of the US economy.

Rusty did not seem to know these key facts, and as a result, he connects the wrong dots, dots that do not fit together, and draws deflation pictures that are not supported by the larger body of facts. Rusty’s picture could come true, only if the US Federal and State governments go on fresh new spending sprees, but US voters have proven that they currently are not in the mood to further increase govt. deficits. Last November’s election results clearly announced that voters do not support “business as usual” in Washington, by sweeping out pretty much all politicians who advocated bigger and bigger deficits.

Finally, every single one of the US’s last 6 recessions required roughly 6 years to recover job losses. This shows that slow recoveries are not proof nor indications of deflationary periods, instead, it shows that as long as the US govt. does not meddle heavily, there is little risk of deflation.

Rusty raises lots of economic boogey-men and monsters-under-the-bed, but these all seem to disappear in the light of reality and facts.

The good doctor is quick to dismiss factual data readily checked through quick Internet searches. His need to “blame Obama” and thus resort to ideological explanations, rather than data-based explanations leads him to discount other points of view.

China and India are no longer growing at the percents quoted. That’s simply old data. The Saudis, Chevron and other sources like the IEA are not ideology based, but simply report the supply demand picture. In recent weeks, with oil prices reaching new peaks, producers and refineries were reporting plenty of supply, no empty tankers and no trouble meeting demand. The price crashed by 10% in one day – one of the biggest drops in history – and that was not the result of a sudden change in demand (or lack of supply). It was the withdrawal of speculative money from the commodities market. Look. It. Up.

The same has happened with corn (the basis of far more than we realize: hog feed, cattle feed, chicken feed….) and other prices are softening as well. If over supply of money were driving inflation, we wouldn’t see a softening. If over demand of oil were constant, a historic price drop would not have occurred. Watch and see how oil prices soften in the next few months. Speculative money will leave the commodities market as it becomes apparent there are no profits to be made (from demand exceeding production).

When the argument starts with the stance “Mr. A is at fault and here’s why”, we are not hearing a fact-based discussion but an ideological one.

Six recessions — avg job recovery time within 25.8 months. That’s pretty far from the claim of 6 years.

2007 Recession: 39 months and still far below “recovery” for Jobs.

The point is made that Japan had businesses $10 trillion in the hole. The entire US economy has currently seen (housing values still falling / bank repercussions not over by a long shot) $15.5 Trillion in wealth lost. If the Treasury has “created” an additional $2 trillion in folding money, it is a long long way from filling the hole. (I believe the actual figure is closer to $3 trillion, by the way).

Finally, there cannot be any recovery without some increase in household wages. There has been none. Until household income rises, there’s frankly little use worrying about inflation: It will be extinguished by an inability to pay higher prices.

Each of my statements are factual. Most are from recently published sources of highly reliable data. They can all be checked instead of repeating an ideological screed against the current administration, whom I readily admit is making many mistakes in their handling of the economy. Just not the same mistakes being claimed here! 😉

As a corporate economist for over 20 years for a Fortune 50 company — a company which did not have any layoffs due to the 2007 recession because our forecasts were accurate by the way — I do not see the data that supports the claims being made.

Hey Rusty,
You assert that:
“Each of my statements are factual. Most are from recently published sources of highly reliable data. They can all be checked instead of repeating an ideological screed …” and he adds:

“China and India are no longer growing at the percents quoted. That’s simply old data. ‘

First, resorting to “name-calling”, like labeling facts as “ideological screed” does not qualify as reasonable dialogue. Do you really think the current World Bank and CIA figures of 9% growth for China in 2011 and 8% GDP growth for India are ideology or are out of date?

You command me to “Look It Up“, and you say that my data “are out of date”. Official World Bank results show that China had 9.7% real GDP growth in official 1’st Qtr. 2011 data, reported in April. Seems to be recent data to me, but I guess not in Rusty’s mundo internal.

Should we really believe his claims and that my data is “screed: and “out of date”, when the current CIA, National Bureau of Statistics, and World Bank numbers all say the opposite of his claims?

India’s actual GDP growth rate was at a 8.2% for 2011’s first quarter. 8.2% of actual growth reported just last month seems to support Norm’s assertion and my assertion that there is increasing demand and pressure from India’s and China’s growing economies to keep oil prices high, which would keep the MXN Peso strong.

Rusty’s repeated $15 trillion claims of net “wealth lost” during the crisis does not seem to fit current accepted data. Official US govt figures for US Net Household Worth spiked-up from $38 Trillion in 2002, before the housing bubble and Wall Street bubble peaking in 2008. Unrealistic housing bubble valuations and unreasonable junk-bond and junk mortgage fueled Wall Street returns, and caused US wealth to jump up to $48T by 2004, $53 trillion in 2005, $55T in 2006, and $66T in 2007 at the peak of the bubbles. Due to the financial collapse, US wealth temporarily dropped by roughly $15 trillion back to $48T, matching 2004 levels, and has recovered in the meantime.

Ironically, US household worth (US wealth), for 2009 was back up to $54 trillion = 2006 bubble(?) levels… wiping out $6 trillion of Rusty’s claims of net wealth losses in just one year. In 2010 the S&P 500 increased by another 13%, which would translate to yet another year in US wealth gain. In the meantime, the recovering US economy has actually recovered at least $10 trillion of the 2008 losses, returning US wealth to 2006 levels, but still below the peak 2007 bubble year. Do these figures indicate deflation? Check the Dow Jones Industrials Index: recovering from lows of 7,000 up to recent 12,500 = close to the 13,000 peak (bubble?) values. Yet more deflation? Rusty quoted a single day of a single volatile price dip in the commodities market to prove his points vs. 3 years of steady but slow economic growth and modest inflation.

Rusty ordered me to “Look It Up”. The results I find are accepted US govt figures that show exactly the opposite of Rusty’s claims. The most current figures show that the repeated claim, of $15 trillion of wealth lost, is the claim that is 3 years out of date. (Where the $15 trillion loss occurred in just one year: 2008. Since that single year, US wealth has been recovering roughly $5 trillion a year.)

His claim of no “core inflation”, (excluding the economist’s “volatile food and energy” hobby horse), also does not fit either US Govt figures for last year (2010) or the last 4 months of US Govt 2011 inflation data which show at least 2% annual “core inflation” through April, 2011 = the very latest data.

These multiple points also show that Rusyt’s claimed “ideological screed” of “out of date data”, used here on Yucalandia, is actually supported by the most recent official data from Congressional Budget Office, US Federal Reserve, the Natl. Bureau of Statistics, the World Bank, and CIA figures for US, Chinese, and Indian economies.

Did Rusty note that all of these figures and reports, (of official data), overturn and contradict most of his propositions? And how do these facts and figures support the claim that I somehow “need to blame Obama”?

I also do not see how the data he presented contradicts the article’s premises that the MXN Peso and Mexican investments should remain strong vs. their US counterparts. Rusty is free to present his ideas and perceptions about deflation, but the last 2 years of data, and the most recent data (this morning), indicate continued core inflation of at least 2%, which simply is not deflation. I do not proclaim the economical politics of deflation, because the data have not broadly supported it, and deflation is not a part of the article’s premises.

“As a corporate economist for over 20 years for a Fortune 50 company“, Rusty can continue to choose to leave out “volatile fuel” and “volatile energy” prices from his propositions, but Norm and I and many others are experiencing some very real impacts from rising fuel and rising food prices.

Corporate economists, like academics, typically describe and experience a very different world than the world of workers and small medium business owners. One group does the work, the other group actually creates the jobs and signs paychecks, while economists and academics are very good at talking about what they think is going on.

Continuing on the false assertion that I “need to blame Obama”: Does it “blame Obama” to make simple observations of the facts? For better or worse, $2 Trillion of Obama Stimulus has pushed many 2009/2010 employee layoffs and State Govt. cutbacks into 2011 and 2012, and it is a fact that the associated home foreclosures were temporarily forestalled from 2009/2010 and shifted back into 2011/2012 and beyond. Many people believe that pushing these losses from 2009/2010 into 2011/2012 may have prevented panic and bought some time for the US economy to recover? Citing facts that explain our current problems and their likely consequences, is not a simple “blaming Obama” mentality. I also fault past Republican governmental deficits and improper financial regulatory rules & enforcement as significant contributors.

NPR reports this morning substantiate the effects of stimulus & foreclosure facts (where the facts are not “blaming Obama”, just recognizing reality). NPR reports that a number of large US States have backlogs of foreclosed homes that will take over 4 years to work off, like California and New York. NPR said that New York currently takes more than 900 days to process a foreclosed property. Ironically, the same States with the big anticipated 4 year backlogs of foreclosed properties are the same ones with huge State deficits. These one-two / one-two punch combinations of new foreclosures, big backlogs of old foreclosure, 2011-2012 State budget cutbacks, delayed Govt. worker cutbacks, and huge State budget deficits seem to point to a 6 year cycle of recovering unemployment rates and home valuations = full recovery delayed until 2015 or 2016. I accidentally misquoted the “last 6” recessions, where instead, it did take the US economy at least 6 years of recover for all of the previous economic crises of this magnitude.

Does Rusty really expect US home values and unemployment rates to recover as soon as the quoted time frames he cited? I hope he is right, that everything will be back to pre-crash levels in a year, but I doubt it.

Finally, all of this data still supports my initial premises that the MXN peso and Mexican investments/property will do OK, and likely better, in the mid-term future vs. the US dollar and US investments/property.
steve

draws deflation pictures that are not supported by the larger body of facts. Rusty’s picture could come true, only if the US Federal and State governments go on fresh new spending sprees

You cannot have it both ways: You cannot say that inflation is caused by government creating money and spending it AND that government spending sprees could cause deflation.

Government spending can sustain jobs (demand for highway construction, for one example, or grants to keep teachers employed, for another) through slack demand by private business and consumer spending. When people keep their jobs, they tend to spend on necessities and desires.

When unemployment remains high, when personal net worth sees falling balances, when people begin to save “excessively” against expected bad times, deflation can occur. Deflation is the withdrawal of spending – private and public – from the marketplace.

Inflation is an overheated marketplace with everyone spending too much. With household incomes flat over a period of 10 years, no one is currently spending too much. Nor are individuals borrowing.

What we see is that businesses, like the doctor says, are hoarding cash rather than pay it out to investors or invest it in employment and productivity or in capital improvements. And we see a population afraid to spend too much due to being upside-down in their mortgages — 28% of all homes in the nation now — and due to uncertain employment prospects.

Price of X is up and Price of Y is down. That is always the case and no individual item proves “a direction.” Overall, there is little sign of inflation. To believe otherwise would be to believe the Federal Board of Reserve Governors — one of the most financially conservative (responsible) groups in the nation in their philosophy — are all lying to us and are scheming to destroy the nation. I say “responsible” because there are plenty of fringe groups on every side. But to imagine that the Federal Reserve is lying and slanting their monetary policy to support inflation is a little much.

Bush appointed Bernanke. And Geithner — to the Fed. Not Obama. Obama just moved Geithner to Treasury. The Fed does not take orders from the president. The governors meet privately and vote. They are an independent body.

On the housing market, here in Ohio you can buy houses for as little as a tenth of what it would cost to build the house new. I looked at new bricks today at a bankrupt brickyard that were selling for 8 cents a brick. No delivery-the driver was collecting on his unemployment insurance. They had over a half million bricks at that price. Things like gravel are 2x what they were ten years ago so maybe it is a wash.
An example: I bought a couple houses off Freddy Mac in 08 at about 15% of their old note-I overpaid, I’m leery of putting any more money in them at this point. Can’t sell them.
Inflation in the food area is a fact, even seed is dear, I have 110# of seed sitting in the barn that was bought to seed a new hay field, cost $150, when I did the same job 5 years ago the seed cost $40. The 12-12-12 to get it started is over 3x as much this time around-the field was past saving, it had to be done.
The two areas that I cited are pretty much equal in my spending, I have always spent about the same amount on feeding my family as I have spent on putting a roof over their heads. Housing is cheap, food is dear today, a few years ago, housing was dear, food was cheap. Fuel prices have hit my budget hard.
I think much of the run up in fuel prices is due to subsidies in China and India, both countries are paying their people to use more fuel than those people could afford to buy at market rates. How long will this go on?? By nook and crook, the price on oil is going to be less than $75 dollars a barrel by 2012’s election.
What is driving inflation is as old as paper money, printing buckets of the stuff. The US is printing, China is printing even more, the EU has taken a breather but will have to crank the presses up soon or get priced out of the market. If we are very lucky, the inflation rate will stay under 5% for each of the next 5 years . Our only hope is that growth will soak up most of that extra paper, if not, we are all going to get a lot poorer.

We can always count on you to tell it straight, with dead-on perspectives for what’s happening with life in middle America for ordinary folks.

I hope that you are right about economic growth soaking up all the extra paper that has been printed. Proposed cuts in Federal deficits and cuts in corporate welfare would also seem to help.

Looking back: During the Nixon/Ford/Carter years, our federal deficits ran between $20B – $80B, but then they immediately jumped to $130B-$350B under Reagan, using CBO figures corrected for Reagan using $50B -$150 per year of SSI surpluses to make his and Tip’s deficits appear smaller. Bush the 1’st, Clinton, and Bush the 2’nd continued to “raid” SSI funds at the rate of roughly $150 billion per year, with no real prospects to ever repay the “borrowed” money.http://www.cbo.gov/budget/data/historical.pdf andhttp://www.ssa.gov/history/BudgetTreatment.html

Bush the 1’st ran huge deficits of $300B – $400B, continuing the high Deficits of other Republican Presidents through their pursuits of war and heavy military spending, paired with tax decreases. Clinton & the US economy reaped the benefits of a Peace Dividend from the end of the Cold War, and deficits started at $350 and fell to just $150 billion annually at the end of his term.

Bush the 2’nd again started us on the path of spiraling deficits by entering 2 wars and simultaneously cutting taxes, giving us $400+ billion in annual deficits. The government then decided to print an extra $2 trillion in dollars to bail out big-but-failing firms, in the financial crisis. But these loans and buyouts are being repaid and recovered in full, with interest.

The most recent federal deficit hemorrhaging spiraled up from the previous $400B levels up to $2Trillion per year under Obama.

Where’s it all going?

I do not know.
But if the US economy continues to recover, as data indicate, and oil prices stay above $100 a barrel, then I think the original premises of this article are correct: Mexico will continue to generally be a good place to invest, and the MXN Peso will remain strong vs. the USD.
steve

Retired to Sonora last year at 55, sold my US businesses. Took that money, my savings, and an inheritance, and bought a lot of silver. More than I weigh. It has doubled in value (Trebled until last month’s correction) and is going back up.

Almost all of my cash is in pesos. The dollar has lost almost 25% in the last year, the peso last summer was >13.5 to the dollar, now it is at 11.6.

Having watched some of my friends lose big money in the 1994 peso crisis, and seen the resulting repudiation of the govt by the Mexican citizens, I am not at all worried about another such crisis, although inflation in Mexico is a fact. I do need to check into Mexican CDs or other investment devices.

Anyway, that is my solution. I would not hesitate to suggest precious metals to preserve your wealth; at this point I believe my silver will continue to rise in price far above inflation, but it is very volatile and takes a strong stomach and some “confidence cash.” I did not expect the kind of increase I got, but it is nice; I may never have to work again. Though of course I will. I have a scheme….